ii view: Mondi points to softer demand

Paper and packaging group Mondi reported progress, but outlook comments overshadowed. 

Half-year results to 30 June 2019

• Revenue up 1.2% to €3.77 billion
• Adjusted earnings up 5% to €894 million
• Dividend payment up 27% to 27.28 cents per share

Outlook:

Going into the second half of 2019, ongoing macro-economic uncertainties continue to impact on the trading environment. Demand is generally softer across the markets in which Mondi operates, while prices for key paper grades are currently below those of the first half.

Chief executive Peter Oswald said:

“Mondi delivered a strong performance in the first half of 2019 against a backdrop of increasingly challenging trading conditions. Higher average selling prices, the contribution from capital investments and acquisitions, and a higher forestry fair value gain more than offset the impact of planned maintenance shuts, lower volumes in certain segments and higher costs. Our initiatives to drive sustainable performance and mitigate inflationary pressures on our cost base continue to deliver strongly.”

ii round-up:

Mondi is a major maker of packaging and paper. It covers the full spectrum from managing forests and producing pulp to developing and manufacturing effective industrial and consumer packaging solutions.

With around 26,000 employees and operations across more than 30 countries, its customers operate in a wide range of industries including automotive, construction, chemicals, food and beverage, personal care, medical, packaging, pet care, and printing.

The group operates through three divisions, with Fibre Packaging accounting for over half of sales and the balance split relatively even between Uncoated Fine Paper and Consumer Packaging. 

The company reported a progressive performance in these half-year results. Its capital investment programme contributed to the progress, along with acquisitions and higher average selling prices. 

However, a downbeat outlook statement highlighting macro-economic uncertainties overshadowed. The share price fell by over 5% in afternoon UK stock market trading. 

ii view:

Mondi has been attempting to simplify the company. It recently changed from a dual listed structure into a single holding company structure. A capital investment programme to deliver value accretive growth and enhance cost competitiveness is also ongoing. 

For investors, a forward price earnings ratio below the three and ten-year averages offers appeal, along with a prospective dividend yield of around 4%. However, today’s accompanying downbeat outlook comments raise reason for caution. 

Positives: 

• Moving to simplify dual listed South African and UK structure into a single holding company
• Progress on its environmental credentials is being made

Negatives:

• Price movements, outside of its control, in containerboard prices can hinder performance
• European markets generate around half of its revenues, leaving it exposed to economic fortunes

The average rating of stock market analysts:

Buy